Auditor Bargaining Power and Audit Fee Lowballing

Incoming auditors usually charge fewer audit fees to obtain the client (i.e., audit fee lowballing). Prior research shows that industry expert auditors have better expertise and resources to perform a higher quality audit than non-expert auditors. Consistent with this literature, we predict and find empirical evidence that the magnitude of lowballing will be significantly smaller for industry expert auditors compared with non-expert auditors. This result adds new evidence of the impact of auditors’ bargaining power to the audit fee lowballing literature.